Roth Recharacterization Relief for 2017 Conversions

Posted by Lee Reams Sr. on

Prior to passage of the Tax Cuts & Jobs Act (TCJA) taxpayers were able to make a traditional to Roth IRA conversion in year 1, and then if the tax was too high, the account lost value or they simply changed their minds, they could convert it back to a traditional IRA in Year 2 and avoid the tax on the conversion.  The IRS refers to this process as recharacterization.

TCJA did away with recharacterizations beginning in 2018.  However, it was unclear whether the law change applied to conversions made in 2017. In their FAQs for IRA contribution recharacterization, the IRS has provided a taxpayer-friendly answer.  To quote the FAQ response:

“A Roth IRA conversion made in 2017 may be recharacterized as a contribution to a traditional IRA if the recharacterization is made by October 15, 2018. A Roth IRA conversion made on or after January 1, 2018, cannot be recharacterized.”